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Demand uncertainty and airport capacity choice
Institution:1. School of Mathematical Sciences, University of Electronic Science and Technology of China, China;2. Institute of Transport and Logistics Studies, University of Sydney, Australia;3. Sauder School of Business, University of British Columbia, Canada;4. China Academy of Financial Research, Shanghai Jiao Tong University, China;1. Toulouse Business School, ESC Toulouse, 20 Boulevard Lascrosses, 31068 Toulouse Cedex, France;2. University of Bergamo, Dept of Engineering, Via Pasubio 7b, 24044 Dalmine, Italy;3. University of Brescia, Dept of Mechanical and Industrial Engineering, Viale Branze 38, 25123 Brescia, Italy;1. WHU – Otto Beisheim School of Management, Germany;2. University of British Columbia, Canada;3. China Academy of Financial Research, Shanghai Jiao Tong University, China;1. Operations & Information Management Department, Isenberg School of Management, University of Massachusetts, Amherst, MA 01003, USA;2. Department of Mechanical and Industrial Engineering, Qatar University, Doha, Qatar;1. Retired, Waltham, MA, USA;2. Institute of Atmospheric Physics, German Aerospace Center (DLR) Oberpfaffenhofen, D-82234, Wessling, Germany
Abstract:This study analyzes the effects of demand uncertainty on airport capacity choices. It shows that demand uncertainty will not change optimal capacity choice if demand variation is low and capacity cost is high; otherwise the optimal airport capacity under demand uncertainty will be larger than the case when a deterministic mean demand is considered. These conclusions are robust with respect to the different market structures considered in this study and hold for both profit-maximizing and welfare-maximizing airports. The moderating effects of commercial revenue, capital cost, and airport operation cost on airport capacity choice are qualitatively the same in the cases of uncertain demand and deterministic demand.
Keywords:Airport capacity and pricing  Capacity investment  Demand uncertainty  Airport competition
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